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The ultimate guide on foreign investment in Indonesia 2019 | How to buy land in Bali as a foreigner?

Can foreigners buy property in Bali? Yes, they can! Here’s the ultimate guide for 2019 on the owner’s rights structure of foreign investment in Indonesia.

Indonesia is the place of choice for foreign investment for 2019. While China’s trade war with America continues to exacerbate an economic slowdown, impacting countries across the globe, the Indonesian economy has managed to grow on average five percent each year over the last ten years.

With up and coming destinations like Bali or Lombok, Indonesia is enjoying ongoing upmarket transformations as well as continued economic growth. With two-fold investment from local government sources, and outside foreign investment in Indonesia, projects are underway that are transforming the sleepy less developed islands in the archipelago, to what the Indonesian government is marketing as its ‘Ten New Bali’s project.’

This top-down financial influx brings strength to Indonesia’s economy, instilling confidence in those outside investors who are seeking to make smart investments of the type only an emerging real estate market can offer or are just looking for a chance to buy land in Bali and develop the dreams’ house they have always longed for.

What’s more, these myriad new opportunities extend to the local community – increasing rates of employment and improving local living conditions – which in turn bankrolls the development of infrastructure, which enable projects to get up and running quickly.

A common question potential investors might have concerns the safety of their investment. At Invest Islands, we talk you through every step of the way.

A typical investor with us is somebody who takes an active interest in researching what making investment in a developing country like Indonesia entails.

We encourage our clients to do their due diligence. However, we pride ourselves in explaining the ins and out of Indonesian law and property ownership in Indonesia, so you are fully engaged in the process of your investment from the outset.

With our professional advice and personalized service, the details of Indonesia’s foreign ownership laws and regulations are easy to navigate and clear to understand, investing in one of the world’s most idyllic locations, achievable.

Property ownership in Indonesia | Law’s Background

In the late 90s, new laws were enacted so that foreigners are permitted to purchase apartments and office space in Indonesia IF the building has a strata title status. This enables the foreigner to own the apartment or office space but not the land on which it stands. For many years Indonesia has decreed that only Indonesian citizens can buy land in Indonesia. Thus, if you want to buy a house (as a foreigner), this would have been legally impossible.

Further laws were passed in 2010 & 2015 which may make it easier for expats to hold 80-year leases on land, but the particulars/interpretation/implementation of the law isn’t always explicit.

Indonesian Agrarian Law, Law No. 5 of 1960, governs the property ownership in Indonesia in regards to lands. In it is a category of land ownership called “Hak Pakai” which mean the right to build on/use the land. As stated in this law, foreigners are only permitted to purchase land or homes under the “Right to Use” (Hak Pakai) title.

Agrarian law is a whole of regulations that determine the relationship between an individual and legal entity with land, water, air, space. And its authority bodies to dispute the cases. This law consists of; land law, water law, mine law, forestry law, fishery law.

Based on Utrecht, agrarian law is the law that examines the legal relationship between state apparatus and the agricultural issue. Then, Boedi Harsono argued if the agrarian law is the law that determines about land, water, some extense of airspace, and all natural resources inside the soil.

Here are the different regulations that govern the Indonesian Agrarian Law:

Foreigners can buy property in Indonesia | Land titles in Indonesia

While Indonesian law does not permit a foreigner or a non-Indonesian citizen to own a freehold title of land in Indonesia, there are other ways that foreign investors can acquire full ownership and property rights and for example, have the chance to pursue a Bali property investment type.

Unlike most Southeast Asian countries, Indonesia provides a once in a lifetime chance to own a share in what is, a classic emerging market.

A PMA is a legal business entity for foreigners recognised by Indonesian law and governed by the Investment Coordinating Board (Badan Koordinasi Penanaman Modal) or better known as “BKPM.”

This entity provides you with a Foreign Direct Investment (FDI) license which is granted by BKPM. Acquisition of the permit requires full background checks on the company and its directors, an investment plan,a verifiable tax number (NPWP) plus a minimum 25% paid up capital of IDR 10 Billion projected in the Investment Plan. 100% foreign ownership is allowed, unless on the Negative Investment List, thereby allowing a foreign investor to have direct legal control over the company and its business activities.

Recent legislative changes have further improved the business registration system by virtue of the Online Single Submission (OSS) system. As implementation rolls out, the various departments involved in the process work towards the integration with OSS.

Further to this, there is a new visa available to foreign investors, which is referred to as an ITAS. This new investment visa is extendable on a 2-year basis and requires no work permit.

This bypasses the need to pay a US$1200 annual tax for Skill & Development Fund Fee to the Manpower Ministry. An ITAS is applicable if the investor is a Director, Commissioner or a shareholder not involved directly in the business.

We continue to keep clients informed of new visa implementations and updates accordingly.

Foreign investment in Indonesia | Using a local Nominee system to buy

A widespread practice, prevalent in Bali, is using an Indonesian nominee to secure the freehold title in the case of buying real estate in Bali.

Here, a local partnership agreement is then established whereby the Indonesian citizen holds the title, but the foreigner invests the capital and holds contracts governing his/her rights to the land.

The Hak Milik title is transferred from the original landowner to the local nominee. Then there are three notarised agreements put in place between the nominee and the foreigner, namely:

A Loan/Mortgage Agreement

An Irrevocable Power of Attorney (POA)

A Permanent Right of Use Agreement

While the above is common practice, it is not contained in the Agrarian Laws of Indonesia hence is a prohibited structure for foreigners who are not married to an Indonesian citizen that are looking, for instance, of buying land in Bali.

How to buy property in Bali as a foreigner | PMA VS NOMINEE

The commonly used nominee structure is illegal and places the investors capital at risk. The safest legal structure a foreigner can have for example to buy land in Bali, permitting property ownership rights is through a foreign investment company.

The PT PMA alternative is a highly regulated and vetted entity by the BKPM. It involves paid-up capital, created for daily business activities in Indonesia, as well as high-level reporting requirements that have to be fully compliant with international investment standards.

Invest Islands holds a PMA specifically for the real estate sector. This license enables Invest Islands to acquire, sell and develop land in Indonesia. It also allows Invest Islands to provide a legal platform from which foreigners can purchase land and property in Indonesia without the need for a local nominee.

Conclusion

In summary, the only legal structure available to foreigners for investment purposes is an HGB title through establishing a new or using an existing Foreign Investment Company structure (PT PMA).

A foreigner can’t own land in Indonesia, but a company can and using this approach, the investor becomes a bona fide owner of that company.

Through a company, you get direct rights over the land and property and it is the closest a foreigner can get to a freehold, without involving a local nominee. The widespread customary use of the nominee structure was created for married couples, not for foreign investment. Although nominee structures are common practice, many foreigners have had land and property taken away from them during disputes.

Holding the deeds for a PMA company both removes this risk and complies with Indonesian law.

For foreign investors, the best solution in terms of the legality, cost and peace of mind is to purchase land through an existing PMA.

If you’d like to discuss it further with one of our advisers, please contact us via our website by filling in an inquiry form, and one of our brokers will contact you. Alternatively, you can use our websites ‘live-chat’ facility.

Notice: Information contained herein is not and should not be construed as legal advice. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness or completeness. The information and content are subject to change without notice.